Uncertainty rises over Brexit and COVID-19- November 2020
Europe’s financial sector faces ‘peak uncertainty’ with 36 days left before the end of the Brexit transition period. With no clarity surrounding discussion on vital issues and financial services, UK executives fear market dysfunction and inflated costs. David Schwimmer, chief executive of London Stock Exchange Group, forecasts that “It looks like the EU will make sure there is a cost to Brexit”. An area of particular concern has been the financial services industry which has been largely left out of trade talks about future UK-EU relationships despite its significance to British and European economies. The EU has rejected UK proposals, thwarting any British attempt to regain market access. This exclusion has facilitated the precipitous level of uncertainty as banks, exchanges and international lenders are depending on a series of last minute arrangements and changes.
Furthermore, ratings agency Moody has cut the UK’s debt rating from ‘AAA’ to ‘AA’ with their economy shrinking by the most amongst the G7 nations. Borrowing by the UK government in 2020-21 is set to be the highest ever with $2.6 trillion in debt, surpassing 100% of GDP. With the Office for Budget Responsibility (OBR) showing at least a $30bn annual hole in the government’s finances, Moody’s said Britain’s growth, down 11.3% from last year, has been ‘meaningfully weaker than expected and is likely to remain so in the future’. OBR warned that the economic outlook would deteriorate if Boris Johnson fails to secure a trade deal with the EU before the Brexit transition period on December 31. Even by 2025, a no-deal Brexit would leave output 1.75% lower than in the OBR’s central forecast, with sectors that were spared from a Covid-19 hit (agriculture, finance, real estate and mining) would inevitably suffer. With huge borrowing this year, the additional deficit caused by the UK leaving the EU without a trade deal will undoubtedly make the new few years for Britain difficult under any circumstance.